The Sustainable Development Goals and the Paris agreement on climate change are the most powerful manifestations yet of the global recognition that economic growth and poverty reduction can no longer be achieved at the expense of environmental degradation. Even so, the key features of environmentally sustainable growth (ESG) remain poorly defined. A recent evaluation of ADB’s experience in promoting ESG suggests five elements are indispensable to this process.
First, the pursuit of ESG is best established within a country’s national development plan, supported by the country strategies of multilateral development banks (MDBs) such as ADB. Take the People’s Republic of China (PRC), blighted by years of environmental destruction. ADB country strategies for the PRC now prioritize environmental concerns. Policy dialogue, technical assistance, and pilot projects were used to explore innovative environmental approaches—such as demonstrational projects for cleaner technologies and integrated multi-sector approaches to address urban and rural challenges—rather than a sector-specific focus. All these approaches are now integrated into ADB’s country strategies for the PRC and are being applied to other environmental issues.
In contrast, the India strategy—which is more typical of most ADB country strategies—has a significant growth focus. While recognizing the importance of ESG, the India strategy supports traditional infrastructure projects, with environmental actions increasingly being incorporated as environmental co-benefits rather than the objective. In Gujarat, for example, ADB supports transmission lines, which are an important enabling investment for a planned solar power generation plant.
Second, ESG must focus on both climate change and the environment. MDBs need to innovate in how they work in energy and transport toward greater sustainability, and increase adaptation work through rural and urban projects. Ecosystem-based adaptation approaches can complement engineering solutions. Next to addressing climate change, this work has the potential to advance ESG, because many growth and climate change projects have major environmental co-benefits. Although technological developments in energy have been made at ADB, support for clean-coal-based power generation and developing hydropower needs to be reconsidered.
Critical regional environmental issues that receive insufficient attention at ADB are urban air pollution, water scarcity, natural resource degradation, deforestation, and biodiversity loss. While MDBs scale up support for climate change mitigation and adaptation, they must not lose sight of the persisting pressing need to assist the poor by strengthening environmental governance, and ensuring the financial and human resources to effectively do so.
Third, ESG projects can imply higher costs, so it’s important to ensure they also have higher benefits. Projects supporting ESG were found to have higher success rates compared to non-ESG projects. This was particularly true for agriculture and natural resources as well as water and urban sanitation projects, suggesting that measures to improve environmental sustainability do not necessarily present a greater cost than benefit. The extra attention to multidimensional environmental projects may contribute to better outcomes.
Innovative approaches are being implemented by ADB across sectors. These include wetland and lake rehabilitation in the PRC, support to biodiversity corridors in the Greater Mekong Subregion, and the Coral Triangle Initiative in the Pacific; all offer integrated approaches to protect critical natural resources and improve livelihoods. However, scaling up biodiversity conservation and natural resource management will require ADB to reengage in forestry and fisheries, as well as support ecosystem service provision and ecological management.
Fourth, environmental safeguards by themselves are not enough to secure ESG. Safeguards are important for mitigating environmental harm, but they do not include aspirational environmental objectives. So beyond safeguarding the environment, ESG must improve resilience, significantly abate negative environmental effects, and enhance human well-being.
And fifth, it is important to be credible on ESG. The proportion of ADB projects tagged as ESG increased from less than 10% of the total in 2004 to 57% in 2013–2015. A review of ESG projects showed that the actual level of environmental sustainability support varies greatly. Projects are classified under the ESG strategic agenda if their interventions involve a shift to low-carbon interventions and prevent pollution, environmental degradation, biodiversity loss, and unsustainable resource use. However, projects supporting connectivity—such as roads, transmission lines, and water supply—are also considered ESG if they provide some environmental co-benefit. 72% of ESG-tagged projects had significant direct or indirect benefits, but 28% contained only marginal or negligible contributions to ESG.
A more differentiated categorization could better capture the true nature of ADB’s ESG support, as in the following three pillars:
- Core environmental operations.
- Economic growth oriented operations with major environmental co-benefits.
- Economic growth oriented operations with minor environmental co-benefits.
For ADB, this would give space for engaging more in projects that have direct environmental benefits. It would also encourage a greater emphasis on including positive environmental co-benefits in its core infrastructure work. And this will help ADB give clearer direction when assisting countries in directly and indirectly improving the environment.